Tag Archives for subsidies.
American Airlines mortgaged their AAdvantage program with the federal government, using it as collateral for a subsidized $5.5 billion loan. The government will get warrants to purchase stock in the airline – and the assets of the frequent flyer program itself if the airline defaults.
While the government announced the backing of a $370 million loan to the airline as part of its bankruptcy restructuring, a Colombian court has now blocked the government aid. This matters to Americans invested in the LifeMiles frequent flyer program, which provides access to cheap purchase of miles and reasonably priced awards on Star Alliance airlines.
American Airlines announced they were going to stop serving 15 cities once government payroll subsidies ran out, and they were no longer required to fly to all of their pre-existing markets.
They’ve backtracked on several of those changes. The latest is Stillwater, Oklahoma where the airport put out a press release basically announcing that their Senators traded political support for air service.
While I’ve been vocally against airline bailouts, one of my main frustration is that proponents have couched their support in terms of ‘the workers’ even though much of the money goes to the airlines themselves and protects investors and creditors. There’s been very little honest attempt to make the true case for payroll support grants.
So let me at least lay out what seems to be the strongest argument against my own position. It comes down to a bet that we’ll be past the virus in April 2021, that airlines won’t invest enough in their businesses to be ready to grow in the meantime, and that the country benefits most from having airline capacity.
Speaking to a group of pilots at the end of last week, a recording of which was reviewed by View From The Wing, American Airlines CEO Doug Parker laid out plans not to cut flights further during the winter this year and to grow the schedule for next year even in advance of passenger demand.
With all of the employees that have taken early retirement, that should mean recalling everyone that’s being furloughed.
In a meaningful sense U.S. airlines are no longer private businesses, they’re vassals of the state. And that’s not surprising. While the largest carriers have given only a small potential ownership stake to the U.S. government in the form of warrants in exchange for subsidies this year, they’ve been effectively converted from commercial enterprises working to satisfy customers into political creatures working to satisfy “the powers that be,” as American Airlines CEO Doug Parker calls them.
Speaking to a group of American Airlines pilots at the end of last week, a recording of which was reviewed by View From The Wing, Parker said lobbying in DC is “frankly where I’ve been spending all of my time.”
On August 20th American Airlines announced plans to drop air service to 15 cities unless the government forked over another $6 billion in subsidies. The cities were spread across 14 states (28 Senators!) and many of the airports slated to lose service October 7 are represented by members of the House Transportation Committee.
However the plan was too clever by half. No one at American Airlines realized the problems dropping service to 3 of the cities on the list, and just as I’ve predicted they are now backtracking.
American Airlines announced this morning that unless the government gives them another round of CARES Act payroll support, they will drop service to 15 cities October 7.
Except they cannot legally leave two of the cities without giving advance advance notice to the Department of Transportation, which they have not done.
Former Spirit Airlines CEO is a JetBlue board member and naturally thinks more of that sweet, sweet taxpayer cash ought to flow to airlines. He lays out what he calls misconceptions about government aid to airlines as he makes the case for the second government bailout of the industry this year.
Baldanza’s piece is a breath of fresh air though because it honestly talks about government subsidies as more than just an unemployment program. He takes seriously government support as an airline bailout, ensuring airlines are providing capacity to the economy, and doesn’t offer the fiction that it’s only about supporting the workers.
Now we have serious arguments worth answering.
A ‘clean extension’ of the CARES Act means another $5.8 billion for American, a lot more money than they’d save with furloughs, and then we’ll be back to laying off employees again April 1 when it’s no longer election season.
Matthew Klint asks if American’s plan to drop ‘up to 30 cities’ without CARES Act money is ‘just a ruse’. It’s not, though the timing of leaking the story to Leslie Josephs was clearly designed as a tactic to push for a second government bailout.
Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel -- a topic he has covered since 2002.
Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »
